A Formula for Analyzing a Business

by Rick Suttle, Demand Media

Compare sales figures to your forecast as part of your business analysis.

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The general formula for analyzing a business is to constantly monitor both internal processes and external variables. Internal processes may vary depending on the type of business but usually include operational and performance issues. External influences can include government regulation, competitors and economic factors. Both internal and external elements can dictate the success of a small business. Most small companies use several key tools to analyze their businesses.

Customer Research

Customer research usually includes phone, mail, Internet or in-person surveys. Its purpose is to better determine customers' needs with respect to product features, sizes, flavors and other product selection elements. Companies which constantly meet the needs of consumers are typically more successful in the marketplace. Small companies may also use marketing research to monitor customer satisfaction. Poor customer service can hinder any business and is, therefore, a vital part of the business analysis process. Small business owners often hire marketing research agencies to conduct their customer surveys.

Monitoring Product Quality

Small companies use several procedures to monitor product quality. Engineers may conduct quality checks on the production line to ensure that products meet certain standards. Some small companies may also test their products in labs for durability and longevity. For example, corporate engineers may put their automobiles through rigorous road tests to better ensure customer safety. Small companies also use benchmarketing as a way of monitoring quality. Benchmarketing involves the constant measurement of a company's products against the strongest competitors, according to "Reference for Business" online. Company engineers may actually purchase their competitors' products and test them in their labs.

Labor Analysis

A small company's labor costs are often their highest expense. Hence, business owners must constantly analyze their labor costs to keep them in line with budgets. Labor costs can include wages, overtime, medical insurance and retirement benefits. Human resource managers may study the salaries or hourly wages of marketing managers and production workers, respectively, to keep them in line with comparable businesses. Restaurant owners may examine labor reports to determine where they can cut back, such as during non-peak periods.

Financial Analysis

Financial analysis is another important aspect of business analysis. Business owners study daily, weekly and monthly sales figures and compare them to sales forecasts. They make inferences as to why sales may be exceeding or falling short of expectations. For example, inclement weather may have a negative impact on sales for retailers and restaurants. Small companies may also study financial records to determine how they can maximize profits. They may realize that inventory costs are too high, which negatively impacts profits. Henceforth, company buyers may order fewer products to minimize waste and increase profits. A financial analysis is usually one of the more important aspects of analyzing a business.

About the Author

Rick Suttle has been writing professionally since 2009, covering health and business for various online and print publications. He has worked in corporate marketing research and as a copywriter. Suttle holds a Bachelor of Science in marketing from Miami University and a Master of Business Administration from California Coast University. He is author of the novels "Hell Year" and "Suicide Peak."

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